Akshaya Tritiya Special: Gold vs stocks — What gives you better returns; what history suggests

One of the most common beliefs among investors is that gold and stocks (Sensex) move in opposite directions. While this may be true over short periods, historical evidence suggests otherwise when viewed from a longer-term perspective.

A look at the bigger picture and long-term cycle analysis reveals a critical trend — gold and the Sensex tend to follow similar patterns over time, according to a study by Steptrade Capital. Whenever a significant divergence arises between the two, it is eventually bridged, the report noted.

The graph below clearly illustrates this recurring trend across multiple market cycles. Gold performs well during periods of uncertainty (geopolitical concerns, weak growth, low or negative real interest rates), while equities tend to perform better during economic recovery phases (improving earnings, liquidity, and risk appetite). Temporary divergences are natural, but they have never been permanent.  

Cycle 1: Post-2015 – Gold leads, equities catch up

The risk-off phase began after December 2015. Interest rate expectations were priced in, real interest rates remained low, and the US dollar peaked. Gold rallied sharply as investors rushed to safe-haven assets. At the same time, the Sensex corrected due to global risk-off sentiment, FII outflows, earnings downgrades, and banking sector stress.

However, the gap closed within 14 months — not because gold fell sharply, but because the Sensex recovered as stability returned.  

Cycle 2: 2020–2021 – Pandemic and economic recovery

Covid-19 disrupted global growth and pushed interest rates close to zero. Gold again outperformed during peak uncertainty, while the Sensex crashed amid pandemic-led panic.

However, as the economy recovered, the Sensex staged a strong rally, closing the gap within 11 months.  

Cycle 3: 2025–2026 – Another familiar setup

A similar situation can be observed in 2026. Gold has rallied due to geopolitical tensions, a weaker dollar, and increased global demand for safety. Meanwhile, the Sensex has faced valuation moderation, rising interest rates, cautious FII flows, and tighter liquidity conditions.

What does it mean for you

Citing historical cycles of 2015, 2020, and 2026, Ankush Jain, CFA, Director and Fund Manager at Steptrade Capital, believes that the gap between gold and the Sensex has widened again. He noted that gold typically outperforms during periods of uncertainty, while equities lag initially.

“Over time, the gap is bridged through stock market gains rather than sustained gold outperformance,” Jain said.

He added that equities are likely to see a meaningful upside driven by earnings growth, normalization of liquidity, and improving risk appetite. “Gold may remain flat or witness a correction as fear premiums recede. This does not imply a crash, but its role as a shock absorber becomes less critical once growth visibility improves,” he explained.

In reality, both gold and stocks move in cycles, and divergences tend to correct over time. Market experts believe these gaps do not signal permanent trend changes for long-term investors but rather present opportunities driven by fear and timing mismatches. However, it is important to note that history does not always repeat in capital markets.  

What should be your strategy?

Many investors face the dilemma of allocating capital between gold and equities. A more appropriate approach is to view this as an asset allocation decision — how much to allocate to equities, gold, and fixed income to achieve a balanced risk-return profile.

Gold should not be seen as a substitute for equities, but rather as a diversifier and volatility dampener. During periods of economic uncertainty or market stress, gold often shows low or negative correlation with equities, helping reduce overall portfolio drawdowns, said Siddharth Purohit, Portfolio Manager (Equity) at Investvalue Capital.

This reinforces the idea that while gold acts as a risk-mitigation tool, equities remain the primary engine of long-term wealth creation. Instead of focusing on absolute returns over arbitrary time frames, investors should consider asset allocation strategies — typically around 75% in equities, 10–15% in gold, with the remainder in fixed income, Purohit suggested.

Over a 30-year period, gold in India has delivered returns of around 11% per annum, while Indian equities (Nifty 50 and Sensex) have generated slightly higher returns of over 11% annually. However, the underlying drivers of these returns differ significantly.

Global markets remain in a complex and volatile phase. Traditional safe-haven assets like gold and silver can play an important role in protecting wealth and stabilizing portfolios during such times. Gold acts as a store of value during instability and often exhibits low or inverse correlation with equities, cushioning downside risks, said Navy Vijay Ramavat, Managing Director at Indira Securities.

“It is important to build gold exposure gradually, maintaining a diversified allocation of 5–15%, rather than investing lump sums during crises. Gold should not replace equities but be seen as insurance during periods of geopolitical uncertainty. Stocks remain the primary growth engine,” he added.